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Trading Lessons

Stock Market Crash Death Cross Doom Prevails

Stock-Markets / Stock Markets 2016 May 23, 2016 - 06:22 PM GMT

By: Nadeem_Walayat

Stock-Markets

We appear to be at one of those stock market times of the year when cognitive dissonance prevails, for one does not need to look far to see the building mood for imminent doom that apparently has been imminent all year! Nevertheless, it appears to be reaching a new fever pitch of intensity with the focus now on the apocalyptic sounding DEATH CROSS ! Which depending on the analyst has occurred from twice to more than a dozen times this century for the fundamental fact that the Death Cross just like much of Technical Analysis is just a back fitting exercise, i.e. tweak the parameters used so as to fit a pattern with the benefit of hindsight so as to support ones pre-existing opinion.


So exactly what is the death cross ?

The consensus view is that a death cross is when the 50 day moving average crosses below the 200 day moving average, though as I said earlier doom merchants tend to play around with the values i.e. 50 day vs 100 day or 25 day vs 100 day etc... Or if they can't make it fit on a daily chart then jump to weekly, fortnightly even monthly charts. And if that does not work than change the indices, from Dow, to S&P to Nasdaq before wondering off around the world looking for that stock market index that fits the pattern sought, whatever fits what has already happened and confirms the commentators perma-doom opinion.

Where are we in terms of the consensus parameters of 50 day vs 200 day?

Firstly, currently there IS NO DEATH CROSS, instead the last signal was a BUY SIGNAL

Secondly the last death cross of January 2016 was a FAIL, i.e. by the time of the cross the Dow had already fallen and bottomed literally within days, so ALL those who acted on the January death cross signal would have been wiped out by the subsequent rally.

Thirdly, the August 2015 death cross could have proved profitable IF those who acted on it exited within a couple of weeks or so. But the problem is that the highly vocal advocates of the death cross tend to see it in terms of the start of NEW BEAR MARKETs or worse rather than a short-term technical trading tool.

The bottom line is that a coin flip is a MORE reliable than the death cross. Which highlights the point I often make that each technical tool such as death cross's and elliot wave theory on their own are little more than 50/50 propositions which therefore means one should be skeptical of ones own analysis else one falls into the same trap that the death cross merchants have today, who believe they have found the holy grail but in reality are just fooling themselves, to suffer from cognitive dissonance when the stock market actually does the opposite of what they expected it to do, whilst at the same time they cling on their death crosses in perpetuity.

In terms of the prospects for the stock market and crude oil see my recent video analysis -

Stock Market - Crude Oiil Forecast

https://youtu.be/Zlax5GaiB40

And also ensure you are subscribed to my always free newsletter (only requirement is an email address) for forthcoming in-depth analysis and detailed trend forecasts that include the following :

  • BrExit to Save Europe from the Apocalypse
  • US Dollar Trend Forecast
  • UK Housing Market Trend Forecasts
  • US Stock Market Forecasts
  • US House Prices Detailed Multi-Year Trend Forecast
  • Gold and Silver Price Forecast

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2016 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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